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"Caution is the watchword" declares MassBenchmarks Editorial Board

The Massachusetts economy is near full capacity and has experienced consistent growth since the end of the Great Recession in 2009. Employment continues to grow, although there is some reason to expect estimates of recent employment growth will be revised downward later this year. At times during the expansion — including during the past couple of years — employment has grown at a rate equal to or exceeding the national rate. Both wage and salary income and the overall economy, as measured by gross domestic product (GDP), are growing at a pace that mirrors national growth.

At the same time, there are growing concerns about weakening economic conditions nationally and internationally, and the potential for a national recession should these trends continue or in the event of an unexpected shock to the global financial system. The waning impact of recent federal tax cuts, slowing growth in China and Europe, the accumulating impacts of tariffs, and a possible softening in the financial sector are all contributing to emerging caution about the outlook for the U.S. economy over the next several quarters.

Much of the meeting was spent discussing current conditions, recent trends, and their implications for the state's economic outlook. Of particular note was an extended discussion of the Massachusetts productivity advantage and threats to its sustainability. Massachusetts GDP has long been growing at about the national rate, even though long-term state labor force and employment growth has lagged the nation. This clearly demonstrates that the state's productivity growth over the long term has been greater than that of the nation. This productivity advantage is primarily the result of the state's industrial composition, in particular our sizable knowledge and technology intensive sectors. These growing industries rely heavily on a highly educated and technically skilled workforce, which Massachusetts has historically been able to provide.

Preliminary estimates indicate that the state's labor force has been growing at a surprisingly rapid rate of late. These estimates are based on relatively small samples and, given the underlying demographic fundamentals, there is good reason to believe that they will be revised downward later this year. What those same demographic fundamentals make clear is that the Massachusetts economy is heavily reliant on imported labor, primarily through international in-migration. As long as the natural growth in the Massachusetts population (births - deaths) remains slow, we will continue to be dependent on in-migration to sustain our growth. As one Board member noted, only 45 percent of the employees of the state's seminal "professional scientific and technical services" sector were born in the state, 35 percent were born in the US, but out of state, and 20 percent were born outside the US.

Since assuming office, the Trump administration has moved aggressively to restrict the flow of international immigration. The effects on the state are already being felt in the form of labor shortages in a number of major employment sectors, including Travel and Tourism, Agriculture, and Seafood Processing. These same policies have also been discouraging international students from studying in the United States. This directly and negatively affects the Commonwealth's sizable Higher Education sector. It also deprives our growing employers from access to what has been a vital source of technical and professional talent. Additionally, current tariff policies continue to disadvantage our leading exporters, many of whom rely on imported components and intermediate goods and are heavy users of steel and other products that have risen in price as a direct result of current federal trade policies.

Notwithstanding the Commonwealth's strong recovery from the Great Recession, it is a truism that downside risks to the economy grow as economic activity peaks. Accordingly, our consensus view in light of a growing number of emerging risks and economic and political uncertainties is that caution is the watchword.

For more information, please contact:
Robert Nakosteen Executive Editor, MassBenchmarks Professor of Economics, UMass Amherst 413-545-5687 nakosteen@isenberg.umass.edu
Michael Goodman Co-Editor, MassBenchmarks Executive Director, the Public Policy Center (PPC) Professor of Public Policy, UMass Dartmouth (617) 823-2770 mgoodman@umassd.edu		Katharine Bradbury Co-Editor, MassBenchmarks Senior Economist and Advisor Federal Reserve Bank of Boston (617) 973-3192 Katharine.Bradbury@bos.frb.org
Mark Melnik Senior Managing Editor, MassBenchmarks Director, Economic and Public Policy Research University of Massachusetts Donahue Institute 617-287-3988 mmelnik@donahue.umassp.edu		Alan Clayton-Matthews Senior Contributing Editor, MassBenchmarks Associate Professor of Public Policy & Economics Northeastern University (617) 512-6224 a.clayton-matthews@neu.edu

MassBenchmarks Editorial Board

Frederick Breimyer, Federal Deposit Insurance Corporation (retired)
Lynn Browne, Founding Editor; Federal Reserve Bank of Boston (retired); Brandeis University
Mary Burke, Federal Reserve Bank of Boston
Peter Doeringer, Boston University
Robert Forrant, University of Massachusetts Lowell
Michael Klein, Tufts University
Yolanda Kodrzycki, Federal Reserve Bank of Boston (retired)
Frank Levy, Massachusetts Institute of Technology (retired)
Alicia Sasser Modestino, Northeastern University
Christopher Probyn, State Street Bank
Geoffrey Somes, Federal Deposit Insurance Corporation
James Stock, Harvard University
David Terkla, University of Massachusetts Boston
Robert K. Triest, Northeastern University
Paul Willen, Federal Reserve Bank of Boston

For timely and comprehensive analysis of the Massachusetts economy, please visit MassBenchmarks at www.massbenchmarks.org.